Archive for Experiences

 

Mr. BudgetPro celebrated his 55th birthday last week. I’m a younger 50-something myself (which is why all you young 20 & 30 year old whippersnappers should listen to me. I’ve been there, done it, done it wrong, know how to do it right)

Retirement saving is front and center in my plans these days, and it’s time we got really serious about evaluating what we have and what we will need. If it turns out we’re short – how do we fix it?

I’ve been self-employed more in the last 30 years than I’ve been an employee. I made a choice many years ago to leave a very good job to work for myself, and I’m wondering if I did the right thing.

I find myself asking questions

• Has being self-employed hurt me when it comes to retirement?
• Would I have been better off to be an employee, banking a 401K with matching contributions and automatic payroll deductions that went straight to savings?
• Would I own more “stuff” if I had relied on a regular paycheck? (stuff = assets)
• Due to my age, has the timing of this recession hurt me more?

It turns out I’m not the only one asking questions

In Dec 2012 an SBA government study was done that examined the retirement savings decisions of small business owners over age 50. Particular attention was paid to how badly the recession might have hurt those retirement savings.

Overall, the study found that small business owners over the age of 50 are significantly less likely than employees to have pension or 401K retirement plans. At the same time, small business owners tend to have significantly greater IRA & Keogh plan savings than employees.

  • Makes sense. People are using the savings vehicles available to them, depending on circumstance.

The study also found that being an employee or being self-employed didn’t really make a difference when it came to how much was saved and how the money was invested.

People, being people, act basically the same when it comes to their retirement money. There was very little difference between the retirement savings habits of a self-employed small business owner and an employee.

  • Think about that one for a minute. We exhibit herd mentality when it comes to our retirement and our money. Wonder if anyone will ever use that knowledge against us?

The report had a few more interesting findings:

The over-50 small business owner had greater financial knowledge than an employee.

  • It’s all those monthly P&L’s, bookkeeping ledgers, and tax returns we self-employed have to immerse ourselves in!

Older small business owners thought about retirement LESS frequently than employees

  •  Could that be because there are no savings to think about? What do your retirement accounts look like? Do you save regularly by paying yourself first?

And, the kicker and take away from the study is, the small business owner has a significantly later expected retirement age than an employee. The small business owner may be LESS likely to retire at all. Small business owners in 2010 reported they would retire, on average, at age 72.6. The expected retirement age of an employee? 68.4.

  • In the end, it’s all about the money. How much thought do you give your retirement savings? Do you make regular contributions to an established account? When you retire, will you be able to continue living in the manner to which you have become accustomed?

 

Small Business Research Summary
"Retirement, Recessions, Older Small Business Owners" 
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May
31

Don’t Pay This Tax Bill!

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Green piggy bank with tax bill of $1000

 

The email caught me off-guard. It was short and to the point:

Hello again! I have a question for you. We received a letter from the state saying that adjustments need to be made to our income tax return and that we owe $580. It says that if we disagree then we can send them back more information. Do you have any suggestions on what we should do?

My first reaction was to snort and say, “No way!”

My next reaction was concern – concern that this was a new tax client, and first return filed out of the gate they receive a letter from the state demanding money instead of the $350 tax refund they were owed. My third reaction was to groan, knowing that somewhere between the envelope being opened at the state tax office and input into the state computer system, a W-2 had been lost.  How long would this take to fix?

The adjustment notice from the state told the taxpayer that a change had been made in the amount of withholding they had claimed. Because the withholding amount used in the state calculation was less than what was claimed on the return, an anticipated refund was suddenly a balance due.

Quickly checking the math in the notice against my records, it took me about two minutes to find the mistake and verify my fear.

The total state income tax withholding my client claimed on his tax return was $1690.00. The state adjusted that withholding down and used a figure of $830.00.

$1690 – $830 = $860.00

Somewhere, $860 in state withholding had evaporated between the time the return was prepared and the time the state processed the paper. The first thing I did was check the state withholding amounts on the W-2’s of the taxpayer.

Guess what. One of the W-2’s had state income tax withholding of $860.00. It was pretty easy to see that a missing W-2 caused the problem. This is actually a very common mistake at the final processing level. It’s also a common mistake for the taxpayer to forget to include his W-2 with his filed return, or to make a math error when adding his withholding among multiple W-2’s.

This error, although it wasn’t made by the taxpayer, is going to take some time and effort to fix. I’ll write a letter disputing the notice the taxpayer received, explaining the missing W-2 is the reason the withholding was adjusted down. Copies of the W-2 must be attached to the letter to substantiate the case. I’ll make liberal use a bright yellow highlighter to make my point. Once the state receives that information, they will make an adjustment on the case and issue the taxpayer his refund – a few months late.

Hopefully, the adjustments will be agreed to and made without incident. The first correspondence might not do the trick – it may take another letter or a phone call. Remember, they lost the W-2 in the first place!

You should never take any letter from any tax agency, telling you a mistake was made and you owe a bill, as gospel. If you don’t understand the adjustments the tax agency is making to your tax return and your account, contact your tax preparer and discuss your case. Take all letters you’ve received from the tax entity to your preparer.

When you’re dealing with changes being made to your tax return:

  • Make sure you understand completely and agree with the changes being made to your tax return before they are made.
  • Don’t ignore tax correspondence – all letters are sent out on a timed schedule and by law you have certain appeal rights, but if you’ve got 60 days to respond and you don’t decide to answer until Day 90, you’re out of time and too late.   Once Day 60 passes with no contact from you, their changes will become permanent.  If the law says you’ve got 60 days, that means 60 days, not 61.
  • If you choose to ignore the tax agency letters and blow your appeal time frame, the changes will become permanent.
  • If you don’t agree with the proposed changes to your account, present your case in a clear and concise manner. Include copies of the original correspondence to you, your reply, and all exhibits needed to back up your argument.  Keep everything brief but to the point.  They’ve already made the changes. You will have to change their mind.
  • If you prepared your own taxes and don’t know whether you made a mistake or not, make an appointment with a local tax professional and show them the letter. Ask your friends and neighbors for referrals. The best tax experts are often found locally. Personally, I would avoid any of the large tax prep companies and go with a local tax preparer or accountant that comes highly recommended.

Have you ever been on the receiving end of an IRS or state tax agency collection letter?

Were you able to resolve the situation without trading in your first-born?

 

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May
22

Roy: 74, Bankrupt, & It Isn’t His Debt

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Gavel in CourtRoy’s birthday is next week, and instead of spending the day with a fishing pole and a camp chair on the creek bank, he’ll be in federal bankruptcy court. The day of his hearing, Roy will drive two hours from his home into the city, alone.

Roy really doesn’t understand all the fine print on the paperwork, or the lawyer-speak. Roy really doesn’t have a clue how he hit financial rock bottom so quickly after the death of his wife.

What Roy does understand is that in order to keep his home, he must declare bankruptcy and stop any action that could be taken against him on a recent court judgment.

Roy and June were married 55 years. Roy did not handle the finances in the marriage. June did. June passed away after a very short illness, and suddenly Roy was on his own when it came to his money and the bills. If you ask him, Roy can’t tell you the name of his insurance agent.

Gene, Roy’s son, had been helping his mother balance her checking account at times during the previous year. Gene had on-line access to the account, and after having his name added, it was easy for Gene to step in and start paying the bills for his father.  Roy lucked out there.

What Gene wasn’t prepared for was the large stack of paper he found in the old desk in his parent’s living room. Past due credit card bills, collection notices, letters from lawyers, past-due medical bills – there was a lot to sort through,and it took Gene days.

The final picture that emerged was not pretty. Roy owed approximately $20,000 in non-secured debt, in addition to his home mortgage. Of the $20,000 in non-secured debt, $1500 were medical bills in Roy’s name. The remaining debt did not belong to Roy, but it was in his name – and he was getting sued for most of it.

June had taken out credit cards in Roy’s name and given them to her son, Tom, with a promise from Tom that he’d pay the bills. Tom quickly maxed out the cards – and left his mother holding the bag. Tom’s wife bought a bunch of new appliances, and bought Roy a chair, all on credit. When she didn’t pay, they came after Roy for the $5000 balance because his name was on the contract.  That turned out to be an expensive chair.

It was the judgment, recently entered against Roy for the furniture bill, that landed Roy in federal bankruptcy court.

At 74, Roy’s credit is ruined for the rest of his life. The bankruptcy could also affect his insurance rates, and the mortgage loan that is due to balloon in 3 years. Roy is paying an interest only mortgage payment now. He can’t afford for his mortgage interest rate to go up.

Roy filed Chapter 7 bankruptcy, which means all of the non-secured debt will be wiped out. He won’t have to pay the debt back, and none of the creditors can take any judgment enforcement action against him, such as levying his checking account or putting a lien on his house.  In the overall scheme of things, $20,000 is not enough to declare bankruptcy over.  In Roy’s case, however, he’s elderly and on a fixed income.  If his checking account is garnisheed, he’ll starve.

Roy really doesn’t understand any of this, because he never played an active role in his finances. Gene, of course, blames himself. He should have made it his business to know, he thinks. Maybe he could have stopped things from getting to this point, he thinks – if he only knew.

 

  • Are you actively involved in your parent’s finances, or the finances of a elderly relative?
  • Do you know if your parents have loaned money to anyone or given anyone their credit cards? What kind of financial hit would they take if they lost that money?
  • Do you owe your parents money? What would happen to them if you couldn’t pay them back?
  • If you’re married or in a significant relationship, who pays the bills?
  • How involved are you in your finances?
  • Do you know the name of your insurance agent?

 

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Nov
13

Give Your Money Away – Tax Free!

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The end of the year is coming fast, which makes tax season right around the next corner.  Quite a lot of people receive income tax refunds, so they are in a hurry to file and get that money back! There are bills to pay and things to do!  The kids need shoes! 

There are things you can do now that will make filing your income taxes easier when the time comes.  In the coming months I’ll be writing about different tax topics you should be aware of, and tax saving tips you can use to get back the maximum refund you’re owed! 

White Gift Box with Red Ribbon BowJanie is a friend of mine, and every year her parents gift Janie and her husband Steve a 5 figure check – each.  This year, each of them received $13,000 from her parents – for a total of $26,000 – and that is completely tax free income.  Janie and Steve don’t owe any taxes on the money, and Janie’s parents don’t have to pay any gift taxes for giving their money away.

If your estate is sizable, and you’re trying to minimize estate taxes, you can use the Annual Gift Tax Exclusion to reduce your estate tax liability.  You can give away up to $13,000 tax free this year to any individual, and to as many individuals as you want – and, if you are married filing joint, your spouse can also give $13,000 to the same people.  Tax free!

According to the tax code, any gift is a taxable gift.  Gifts can be property, money, the use of property, or the right to receive income from a property.  According to the tax code, there are exceptions to this “any gift is a taxable gift” rule.  (Of course there are, Congress wouldn’t have it any other way!)

The following gifts are usually not considered taxable:

  • Gifts that are not more than the annual calendar year exclusion (from 2009 through 2012 this has been $13,000 annually for each gift)
  • Tuition or medical bills paid for someone else (you must pay the institution directly, not the person)
  • Gifts to your spouse
  • Gifts to a political organization
  • Gifts to charities

If someone receives a gift that is valued at more than $13,000, taxes are owed on the amount that is above the $13,000 exclusion.

Any gift you receive is not treated as income.  The person giving the gift is responsible for paying the gift tax.

For example:

1.  Mary gave Joe a cash gift of $9,000 during the calendar year.  This gift is not taxable because it is under the $13,000 exclusion.

2.  Jack gave Susan a cash gift of $16,000 during the calendar year to pay for college tuition.  IF Jack had paid this gift directly to the state university Susan attended, the entire $16,000 would be non-taxable due to the education exclusion.  BUT, Jack gave Susan the money personally – so the first $13,000 is not taxable due to the annual exclusion, but the remaining $3,000 is considered a taxable gift.  Jack, as the donor or gift giver, is responsible for paying any gift tax due.

3.  Aunt Joan gave Lisa $20,000 cash to purchase a used car.  The first $13,000 of this gift falls under the yearly exclusion and is not considered taxable, but the remaining $7,000 is considered a taxable gift.  Aunt Joan is responsible for paying any gift tax due.

4.  Pete and Sally are married.  Sally gave a cash gift of $25,000 to her daughter during the calendar year.  Pete gave his son a gift of $15,000.  Neither of the gifts are taxable, both are completely excluded from the the gift tax.

This example messed up your thinking, didn’t it?  If Sally gave her daughter $25,000, then the amount over $13,000, which is $12,000, should be taxable, right?  What about the gift Pete gave his son – that was $15,000, or $2000 over the exclusion limit.  That $2000 is taxable, isn’t it?

Not so fast.

When you are married, and both spouses agree to the gift, Gift Splitting becomes a factor.  When Pete and Sally agreed to split the gifts they made during the year, each gift was split equally between the two of them.  That $25,000 Sally gifted her daughter?  When split, Sally gave $12,500 and Pete gave $12,500 – this is under the exclusion amount of $13,000, and therefore this gift is not taxable.  The same math works with Pete’s son:  his gift was $15,000, but when equally split between Sally and Pete, the gift becomes $7500 from each – well under the $13,000 exclusion and not taxable.

Take a minute and realize how powerful a tool this can be – you can get creative and give gifts that will benefit you as well as the gift receiver.  You can gift your children yearly to the max, and not only build a nest egg for their future, you can do it relatively tax free.

Let’s try one more example:

5.  This year, Sonny decided to give 10 of his grandchildren checks for $13,000 each.  Sonny also paid the college tuition for a nephew, writing a check to the local college for $15,000.  Sonny paid a local hospital $14,000 for medical care his son, Carl, received.  The $14,000 bill was the balance due after Carl’s health insurance paid in full.  Carl was off work for 3 months, recuperating from his injuries.  During this time, Sonny also paid $2500 in health insurance premiums for his son.  Carl’s wife, Connie, took an unpaid leave of absence from her job to care for Carl.  Sonny gave Connie a gift of $25,000 to replace her lost income.  Sonny gave $20,000 to Shari, a good friend of his.  Shari promptly sailed to Hawaii.  Sonny also gave $25,000 to his sister, Ellen.

  • None of the $130,000 gifted to the grandchildren is considered a taxable gift.  The $13,000 exclusion applies in each case.
  • The $15,000 paid for college tuition falls under the education exclusion.  This gift is non-taxable.
  • The $16,500 Sonny paid for Carl’s medical bills and health insurance premiums is non-taxable due to the medical exclusion.  (Sonny paid the hospital and the insurance company directly, which classifies this as medical exclusion.  If Carl would have been paid directly, only $13,000 would have been excluded from tax)
  • The first $13,000 of Connie’s gift is not taxable.  $12,000 remains after applying the exclusion and is considered taxable.
  • $7000 of the gift Sonny gave Shari is taxable.  ($20,000 – $13,000 = $7000)
  • Sonny owes gift tax on $12,000 of the gift he gave Ellen.  ($25,000 – $13,000 = $12,000)
  • Sonny gave away $231,500 in cash gifts this year.  $31,000 of that is subject to gift tax.

Sonny will be required to file a Form 709, US Gift Tax Return, and $6,220.00 in taxes will be assessed on the $31,000 we’ve determined is the taxable amount of all the gifts Sonny gave this year.  But guess what?  Sonny won’t pay a dime in gift tax.

I’ve really confused you now, haven’t I?  (Please don’t bang your head on your desk, and stop pulling your hair – this will eventually make sense) Let me explain about the Unified Credit to Gift Tax.

You see, because Congress writes the tax code, and because Congress is made up of of millionaires and billionaires, they write the tax code to benefit themselves and their friends.  Become familiar with what is in the tax code as it applies to your situation, and use the law to your benefit.

In addition to an Annual Gift Tax Exclusion amount, and in addition to a list of gifts that are not considered taxable, there is a Unified Credit available.  This credit is used to eliminate and/or reduce any gift tax due.  As an added bonus, any Unified Credit not used to eliminate gift tax can be used to eliminate or reduce estate tax.

Back in 1979, the Unified Credit available was capped at $38,000.  In the year 2012, the Unified Credit is $1,772,800.  (The Unified Credit to may increase – it was steady at $330,800 from 2002 through 2010, but then jumped to $1,730,800 in 2011 and increased another $42,000 in 2012)

Remember:  this is a tax credit – as you can see by the example above, $31,000 in gifts generated $6220 in tax – the Unified Credit available is $1,772,800 – and Sonny will use this credit to offset his gift tax due.  Tax credits are applied to tax due, reducing or eliminating tax.  A tax credit “pays” for the tax instead of you – and everyone gets the credit.

Do you understand how powerful gift giving can be when it comes to reducing your estate tax burden?  You can give away your money, not pay any taxes on it when giving it away, reduce your estate, and in the end save major dollars when it comes to any estate tax assessed!  Set up accounts for your children, gift them to the max, and they don’t have to report the gift as income.  It sounds unbelievable, doesn’t it?  See how nice Congress is when it comes to making the law concerning gifts and taxes – and take note that one of those examples above of non-taxable gifts is money given to “political organizations”!

I hope I’ve given you food for thought when it comes to your income, giving cash gifts throughout the year if you can afford it, building wealth for family members, and possible tax strategies when it comes to the tax on those gifts and your estate.

 

There is a spirit in the world of generosity that brings good things to all of us, whoever we may be … A Christmas Carol

Note:  Please consult a qualified tax professional when mapping out your gift giving.  This is a brief overview, and there are more rules when it comes to the definition of a non-taxable gift.  If a husband and wife are gift-splitting, certain tax forms must be filed.  The gifts you give may or may not have have to be reported to the IRS.  When gifting to grandchildren, Generation-skipping Transfer Tax may apply.  Giving away real property may come with tax disadvantages, and may be better left in an estate until death.  Usually, the gift giver is responsible for paying the gift tax, but if he doesn’t, the gift recipient may have to pay the gift tax.  Nest eggs built for children could impact them in a negative way when it comes to qualifying for college financial aid.  Exclusion and credit amounts are subject to change based on changes to the current law.

 

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Nov
12

A Death In The Family

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White Dove in FlightTwo weeks ago, my mother-in-law passed away very unexpectedly.  She left a surviving spouse, four children, seven grandchildren, and two great-grandchildren.  She did not leave any life insurance.  She did not have any sort of pre-paid burial plan in place, nor were any funeral arrangements made in advance.

When a death occurs in a family, the living are busy grieving.  On top of the emotional hit that happens, there are many things to do when it comes to a funeral.  We had people coming in from out of town and out of state to stay here for most of the week, others stopping by as they were coming and going.  In addition to shopping for extra groceries, we were also shopping for new clothes to wear to the service.  For almost a week, daily trips were made “home” and back, driving more than an hour each way.  A lot of stress was added to the grief.

Take a minute, right now, to stop and think about your own situation.  What is in store for your loved ones when faced with your demise?  It could happen tomorrow, you know – or six months from now.  Or six years.  Or 60 years.  There is only one thing absolute in life, and that is death.  You never know when it is going to happen – and that’s the rub.  You just don’t know.

When death happens, when your family is grieving, do you want your loved ones to suddenly have to deal with a lot of decisions concerning your death and funeral?  There are medical decisions to be made, legal decisions, financial decisions, plus many more.  Do you want family members arguing about what casket to choose, what music to play, or what pictures should be selected for the video memorial?  Do you want your loved ones to make your funeral arrangements based on what may or may not be in their bank account, or yours?  Do you want to leave your loved ones struggling emotionally and financially over what kind of service they want to give you vs. what they can really afford?

Death is a necessary part of financial planning.  You should treat life insurance as a mandatory expense, as mandatory as your car insurance, or your homeowners policy.  There are situations where life insurance may not be a viable or affordable choice, and there are alternatives.  Pre-paid funeral plans are available through just about every mortician or funeral home.  Buy a plan now and have it in place for the future – it doesn’t matter if you are 26 or 76.  Do it now.

A funeral home here in my village has a pre-paid program that allows you to make all of your funeral arrangements in advance.  You decide what kind of ceremony to have, whether there will be a casket and what color, what kind of vault, and does that vault need a name plate, what kind of flowers, the type of music, what kind of printed funeral programs, how many pall bearers, whether there should be a family car – there is a long list of decisions when it comes to a funeral. Prices are locked in at the time you make the arrangements.  The funeral home will present you with a price quote and a contract.  You can pay in full or set up a payment plan.  Payment plans are normally set up through a third party (usually a bank), who collects the money in trust and forwards it to the funeral home.  Everything is arranged and paid for in advance.  When the time comes, your family will be dealing with the only thing they should have to deal with at your passing – their grief.

Most funeral homes will also work with you if life insurance is pending when death occurs.  When my grandmother passed away twenty years ago, she had all of her funeral arrangements in place, down to her dress.  She had made a partial payment when she set up the arrangements years before, and she had life insurance.  The funeral took place, and a month later when the life insurance paid out, the balance due was paid.  If you do have life insurance that will be used for your funeral, you still need make your own funeral arrangements.  Don’t leave that kind of stress to your family.  It’s going to be all they can do to handle the loss of you.

Can your survivors survive the sudden financial burden of a funeral?  A few years ago, a grandfather died in our family.  We soon found out that his life insurance policy had been cashed in a few years before, and there was no pre-paid funeral plan or funeral arrangements made in advance.  It fell to a few of the grandkids to pay for his funeral.  At the time, we were able to write a check for our portion – but can your family do the same?  Can your family afford to be saddled with a bank or finance company loan and a monthly payment that will be due 30 days after your death and continue for 2 to 5 years?

None of us want to leave our loved ones with these type of circumstances.  Pick up the phone, get quotes on a term life insurance policy, and set that up to automatically pay through your bank account or a credit card.  Check into pre-paid funeral plans, check the history and reputation of the company, make those plans, and pay that bill while you are living.  Do it today, and do it for your family.

You must prepare for the only absolute in life you can count on:  your death.

 

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Oct
24

Who Do You Know?

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It’s the middle of October, and a cold snap is due to hit next week.  I’m going to have to turn the furnace on, and it needs to be serviced.  I read the other day that 1/100 of an inch of dust on the motor can reduce the efficiency quite a bit.  I have no doubt there’s enough dust on the motor that a cleaning is needed!  The furnace is getting up there in age, too, and it really needs to be checked for carbon monoxide.

The price of a regular seasonal furnace check from any of the licensed companies in the city is approx. $150.  I was able to find a few coupons, which would bring the cost down to about $100.  If I want to bundle services and buy a package deal for both summer and winter check-ups, the cost is around $200.

I’m going to spend $50 to service the furnace – because I know Jerry..

Side Work Is Lucrative

In April, my husband lost his job. I had an appointment scheduled the very next week for an AC check-up, and I’d scheduled the package deal for $200.  When I made the appointment weeks before, the package deal made sense – buy summer and winter and get a discount!  Of course, I took the package deal!  Because of the job loss, however, I was reluctant to spend that kind of money – even with an emergency fund available.

The next day, during a trip to the mailbox, I ran into my next-door neighbor.  I asked him if he knew anyone that did home AC servicing, and did they do side work?  Bingo!  He did know someone – a young man who worked for a heating and cooling company in the city, and had serviced my neighbor’s appliances for the last couple of years.

I made a call to Jerry, who came out that weekend.  While chatting with Jerry, I found out he was in his early 20’s, had a 3 year old daughter, and had been doing appliance service work in the 3 years since he’d graduated from Vo-Tech school.  He worked for a family-owned small business that had been in the business for 30 years.  Jerry played hockey on the weekends, and serviced all the rental homes of a couple of real estate agents in town – and one of those I happened to know.  When Jerry was finished servicing the unit, he gave me a written report about the unit and its performance – and a bill for $50.

In July, on the hottest day of the year, the house woke up to a broken AC unit.  I called Jerry that morning, and at 8 PM, after he had finished his work schedule for the day, he came by and fixed the unit.  A capacitor had burnt out and needed replaced.  Total cost:  $75.  This fix normally would have been a $150 repair.

If you know the right people, or know the people who know the right people, you can save money on just about anything.  Auto mechanic, auto body repairman,  heating and cooling, hair dresser, roofer, concrete finisher, brick layer, teacher, carpenter – these are the occupations of people that I personally know that work a regular 8-5 job, but will also do side work.

Ask around, you never know who your friends know!  Not only can you save money, but the person doing the side work also profits.  Depending on the job, a lot of money can be made by doing side work.

Side Work to Self-employment

If you have dreams of owning your own business, or simply going out on your own and away from any employer, you can use side work to build up a clientele.  Once you’re got enough money coming in that you can replace your employee income, jump out into your dream.  (Beware of any contracts you signed for your current employer:  non-compete, exclusivity, etc)

 

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Oct
11

Emergency! Emergency!

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No Job SignSix months ago, April 6th, on Good Friday (oh, the irony!) – my husband lost the job he had for 13 years. This came completely out of the blue, with no warning. I now know what the bug hitting the zapper in the back yard feels like.

Once the initial shock wore off, we took stock. We had an Emergency Fund, and my husband was owed vacation pay. When I added the two together, we had approx. $25,000 cash. I knew we’d be alright for a few months with the emergency fund, but I also knew we’d have to cut spending to the bone. We didn’t have any credit card debt, nor any car payments, which was a big plus. Those are expenses that can drain finances quickly. We did have a mortgage, insurance, utilities, food, gas – basic and necessary expenses that kept the roof over our heads, the Internet lights on, and food on the table.

I wasn’t overly worried. MrBP is good at his job. I knew the phone would be ringing fairly soon with a job offer, or he’d be able to network a bit and find an opening. This layoff was going to be just a little bump in the road in the overall scheme of things, and we would be fine.

The first thing MrBP did was file for unemployment. Unemployment in this country is not fair to the unemployed, as I’m sure anyone out of work will tell you. MrBP did qualify for the maximum amount of weekly unemployment: $320.00. Wow. I know $320 is better than nothing, but a month of unemployment checks still wouldn’t cover the mortgage. MrBP could also draw unemployment for the maximum number of weeks: 20. Another Wow. Twenty weeks of unemployment equals thirteen years of work history. If he had worked the for company for 30 years, 20 weeks was still the maximum number of weeks he could draw. There is something wrong with that government math!

When a person files for unemployment it takes some time to get that first check. Remember that vacation pay I mentioned? That had to be claimed as income for 3 weeks.  (If what you claim is more than the amount you’re eligible for – you don’t get paid unemployment that week)  At the end of the 3 “vacation” weeks, a waiting week had to be “put in”. This happens to everyone – the first week you are unemployed basically doesn’t count – for anything. Unemployment benefits don’t become available until the second week a person is out of work. Checks don’t come the second week either – the process of being approved for unemployment can take 2-3 weeks, or much longer. Considering the majority of the working population lives paycheck to paycheck, losing a job can be a big deal. All of this waiting for money is going on when people need that money the most!

MrBP was out of work for a month. He never did draw an unemployment check, because the 3 vacation weeks and the 1 waiting week took up that month. We had enough money in the bank that life went on as normal – we just didn’t spend any extra, we didn’t go out to eat, we didn’t go to the movies. Cutting out all unnecessary spending opened my eyes to the kind of money we did spend in some areas. Because there was enough coming in, neither of us had paid much attention to some of the conveniences that were going out. (After all, life shouldn’t be all work and no play, right?)

If we hadn’t had our Emergency Fund, life would have been a completely different story. We would have been in financial trouble fast, as fast as the bills came due. We spend $3000 monthly on house, utilities, insurance, and cell phone payments, but that doesn’t count food, gas for the cars, incidentals, etc.

Emergency Funds are as necessary as homeowners insurance is if you own your home, as necessary as car insurance is if you drive a car. Everyone should have an Emergency Fund. If you don’t have one, you need to start one. Don’t tell me you can’t afford one – you can’t afford NOT to have one!

An Emergency Fund is intended to replace income if you can’t work, but it’s also nice to have when the car needs major repair or the AC unit quits on a 100 degree day in July.

Most financial planners recommend having 3-6 months worth of living expenses saved. But, due to the state of the economy, the average length of time a person is unemployed these days is 9 months (Bureau of Labor Statistics). If you’ve only got a 3 month cushion, what are you going to do the other 6 months when the rent is due, and you’re still looking for work? I know what you’re thinking – you’ve got those credit cards in your billfold, and you’ll fall back on those if you really need to. Let me ask you this: when the credit line is used up, how are you going to repay that debt?

Starting and regularly adding to your Emergency Fund may feel daunting, and may seem like an insurmountable task.   The good news is, you may not need as much as you think. Sit down and make a list of every single bill you pay every month. Go through your bank statement and write down all debit card transactions and what they were for. Check the bank statement for ATM cash withdrawals, and write down what those were for. Get out your credit card statements and add those transactions to the list of money going out for the month. Add all the numbers up.

Now, cut out what isn’t absolutely necessary. The mortgage payment is necessary. $5 at Starbucks twice a week is not. Look closely at bills such as cell phone, cable, gym memberships, newspaper delivery, lawn care – if it came down to it, are these as necessary as food and electricity? No?  Cut those out. Once you figure out the basic living expenses you need to survive, multiple that by 12. Write that number down. Your savings goal is 12 months of basic living expenses in an Emergency Fund.

Work out a savings plan, even if all you can do is save $1 a week, or $25 a month, or the change from your pocket at the end of the day. Put that money in savings and forget it. Cut out one or both of those lattes every week and put that money in savings instead. Treat your Emergency Fund like it’s your water or gas bill, figure out how much you can save regularly, and pay the savings account just like it’s the mortgage company.  Start today.

I was glad we had savings to fall back on. We spent a lot of it, and it went faster than planned because the AC unit did break down on the hottest day of the year, along with a few other things.

During the 5th week of unemployment, the phone rang and MrBP was offered a job – at the opposite end of the state. A 3 hour drive, one way, from the home we’ve lived in for the last 24 years. Whoa.

The new job – and where it was at – brought up a lot of questions: were we going to relocate? Sell our home here? Rent it out? Rent in the new location, or buy? Where would MrBP live for the near future – with family in that area, and if so, for how long? How much was all of this going to cost? There were so many variables and many unknowns six months ago!  A few things didn’t work out, while great truths were learned … stay tuned to find out what happened!

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This Saturday, September 29th, is “Museum Day Live!”

Over 1,450 museums across the country are offering FREE admission!

In the spirit of Smithsonian Museums, who offer free admission everyday, Museum Day Live! is an annual event hosted by Smithsonian magazine in which participating museums across the country open their doors to anyone presenting a Museum Day Ticket … you get in for free!

Check this link  “Find a Museum Page”  to locate a participating museum in your area. I was surprised to see 3 pages returned to me when I checked my state. Once you find a museum on the list you’d like to visit for free, fill out and submit this form on the  “Ticket Information Page” . You will receive an email with instructions on how to download and print your *FREE* ticket.

You won’t be able to get into the museum without your free ticket. One ticket is allowed per household, per address, and one ticket admits two people. If you take more than one person with you to the museum, someone is going to have to pay full price to get in. (The free ticket will not cover parking charges, special events, or special exhibits)

If you’re looking for something to do this Saturday, visit a museum! Museum trips make great family outings. Use this *free* Saturday experience to introduce your kids to history and art – it’s been shown in studies that museums make you smarter and inspire learning! Put on your walking shoes – and don’t forget your ticket!

Learn More:  http://www.smithsonianmag.com/museumday/

Find a Museum Here:  http://www.smithsonianmag.com/museumday/venues/

Get Your Free Ticket For Two Here:  http://www.smithsonianmag.com/museumday/ticket/

 

 

 

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Sep
18

Helpful Hands

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Today’s post is my first guest blogger, a fellow writer I’ve known for many years. A. T. Weaver is the pen name of an elderly woman living in Eastern Kansas, author of 3 books and more than 1 blog.  A. T. Weaver – WriterAs I watch the elderly people in my life struggle with fixed incomes vs. rising expenses, I know all too well how every little bit helps. If you are able, donate to your local Harvester’s and food banks. When the Post Office has their food drive, hang a sack on the mailbox and put a couple of cans or boxes in it. Two cans of beans may not mean much to you, but it can be a meal for someone. I’ll never forget seeing an elderly gentleman ahead of me in the check-out lane, counting out pennies and nickles to buy two cans of pork & beans. He opened one of the cans and ate it while sitting on the curb. Your two cans of beans may keep someone from going hungry that day.

Two hands holding loaf of breadAs a senior citizen living on Social Security, sometimes it’s difficult to make ends meet. I live in a HUD subsidized facility so my rent is not as high as it would be otherwise, however it is still one-third of my income. There are several organizations that help seniors with financial problems.

Where I live we have two organizations that come in every week. One is the New Life Family Church in Kansas City, Kansas. Every Monday, they bring in bread and pastries that would otherwise be thrown out. Now that may not seem like a lot – a free loaf of bread – but if you’ve been to the grocery store lately, you know the cost of bread can be over $2.00 a loaf. Most of the items are dated either ‘today’ or ‘yesterday’ but they are still edible. Of course there are those in my building who complain about the type of bread they bring. Today I went downstairs and there were at least ten or twelve baguettes left. Most of the seniors here don’t like baguettes or French bread. It makes good garlic toast or cheese bread.

Another organization is Village Church. Every Monday they come and pick up our ‘Senior Center Shopping List’. We can choose two canned vegetables, two soups/sauces, one canned meat, one staple (sugar, flour, rice, cake mix, etc.), one dairy, one snacks/chips, one fresh vegetable or fruit, and bread. One week a month they will bring peanut butter, fruit or juice, and personal & household items. i.e. dish soap, laundry soap, hand soap, toothpaste, toilet paper. Now they only bring one roll of toilet paper which doesn’t last a whole month, but that’s a roll we don’t have to buy.

Then on Thursday, they deliver what we’ve asked for. They have a contract with Trader Joes and often bring fresh fruit and vegetables. They also bring bread and pastries from area grocery stores. Again, these items may be dated ‘today’ but they are still edible. Then we fill out a new list and send our bag back to be refilled.

Since my building has the Village Church delivery, we don’t have a Harvesters’ distribution. However, there is a distribution once a month at a location in Olathe where we can go and get fresh fruit and vegetables and again, bread and pastries. If you have a car or someone with whom you can get a ride, it’s a good deal. I usually take one other lady with me. I would take more, but by the time we get a walker and a cart and two boxes of food in the car, there is no more room.  Two hands holding pineapple

One other source of food is the Government Commodities. While the other distributions are for anyone in the building, you must qualify for Commodities. One other problem with them is the fact that so many seniors have problems with what they can eat. For example I am diabetic. There are a lot of foods I can’t eat in the Commodities bags so I quit taking them.

There are many months when these services mean whether or not seniors have a meal on the table. I for one am very grateful for these helpful hands.

 

 Helpful Resources:Feeding America is the nation’s leading domestic hunger-relief charityGovernment Emergency Food Assistance Program (Food Commodities)

Harvester’s

Find a local food bank (Feeding America)

Food Stamp & WIC Program Apply Online

Meals on Wheels

Find Free Food

Global Food Banking Network

 

 

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The Bank May Own Your Home, But Don't Let Them InsureA representative from the Sheriff’s office knocked on the front door, clipboard in hand. She was there as a courtesy, to inform the homeowner that first thing the next morning the sheriff would arrive to move everything in the house to the curb. Barb was being evicted, courtesy of “The Bank”. The homeowner knew the eviction was coming, she just didn’t know when. Filing Chapter 13 Bankruptcy six years previous and jumping through the required hoops, court appearances, and red tape paperwork had not saved her home in the end.

Fifteen years ago, starry-eyed Barb was living the American Dream of Home Ownership the day she signed loan papers and bought her first house. She had a good job as an employee of the state where she lived, earning a decent wage, had a retirement account, some money in the bank, and a savings account. Buying a house seemed like the next logical step, and she took it. The payment was certainly cheap enough, just slightly over $550 a month – monthly rent was more than a house payment! It made sense to buy instead of rent!

Things were good for quite a few years, but due to budget cut-backs, Barb lost her job with the state. The economy was starting to slow down and unemployment was rising. There were suddenly a lot of 30 and 40-something women out there, looking for work. When her savings ran out, she cashed in her retirement account to pay the bills. By picking up work here and there, Barb was able to stretch what money she had saved for retirement and pay bills for two years. Before she did hit that area slightly beyond broke, Barb was able to get a new job with a non-profit agency. She was back to work full time.   Things began to look up.

One day Barb got sick. High health insurance deductibles, co-pays, percentages the insurance wouldn’t pay, lost wages from missed work once the sick pay ran out. Everything began to gather into a perfect financial storm that would culminate in losing her home. Barb had no clue what was coming down the track.

During the time Barb was sick, she missed paying the premium on her homeowners policy. She remembered getting a letter from “The Bank” – it was in a stack of mail that was waiting for her when she returned home from a hospital stay. The letter told her that because “The Bank” had a financial interest in her home, and because the insurance policy protecting the dwelling had lapsed, “The Bank” had purchased a policy to cover their interest in the house. Barb had so many things to worry about that day, she breathed a sigh of relief that catching up on past-due insurance premiums wasn’t such a pressing issue anymore. There was still insurance on the house in case it caught fire tomorrow. “The Bank” was also going to be nice, and add the insurance premium to her house payment. Barb put all worry about homeowners insurance out of her mind at that moment.

Barb got sicker. She was in the hospital again, and again. Bills were piling up, and for some reason her monthly mortgage payment had gone from a tad over $550 a month to almost $900. She didn’t understand what the $400 listed each month in the “Miscellaneous” column was for, and repeated calls to “The Bank” didn’t get any answers.

Things were getting bad financially. The utilities were turned off, but Barb was able to get help from a non-profit agency to turn them back on.  She started selling off her belongings in garage sales, but before long there were too many bills, and there was never going to be enough money.

Barb consulted an attorney, who took one look at her financial situation and advised her to file bankruptcy to stop the collection agencies and save her house.  She filed Chapter 13 Bankruptcy, and was set up with a five year repayment plan.  Barb’s plan was to use this breathing room the bankruptcy would give her to catch up on her past-due mortgage and try to get a handle on her health.

Barb needed help with her with income tax filings. She had been so sick she hadn’t filed anything for a few years, and the Bankruptcy Court and the IRS were demanding tax returns. While looking through her paperwork, I realized what that $400 a month tacked onto her mortgage payment was for: it was the premium for the homeowners policy “The Bank” had bought when her policy lapsed. She had been charged this “premium” for at least two years, perhaps three, which had thrown her into a very deep hole. I immediately called my insurance agent and put him in contact with Barb. He was able to write a policy on her home that cost approx. $100 a month. We were able to get “The Bank” to stop charging her for “The Bank” policy – but the damage had been done. That “past-due balance” hole was pretty deep at this point.

Barb got sicker. Barb had major surgery that required a lengthy hospital stay. She was only home from the hospital a few days when she had a heart attack in the middle of the night. The doctors told her it was a miracle she was able to wake up and get help for herself. Back to the hospital she went, and when she came out a few weeks later, she was permanently glued to a portable oxygen canister. Barb lost her job.

It took about six months, but Barb was qualified for and started receiving Social Security Disability. It didn’t make much difference by that time – her Social Security check is $1100 a month, the mortgage was in such arrears due to the added “miscellaneous” expense and simply not being paid, there was no catching up. Barb could maintain, but she could not catch up.

In May of this year, Barb received a letter from “The Bank”, telling her that her home was due to be sold at a foreclosure sale. “The Bank” bought it at that sale and changed the county real estate records to show they were the owner of record.

Barb started looking around for income based housing, and found out there was a three year waiting list for anything
she could afford. She knew she couldn’t stay in the house indefinitely, but what does a person do in a situation like this? They stay where there is a roof over their head. Last week, the Sheriff’s office representative showed up at the front door, clipboard in hand. When she saw Barb was on oxygen, and was able to see that she was under the care of a doctor, she told Barb to show that documentation to the Sheriff when he did arrive with a crew – it might make a difference, it might not.

Barb was able to work with the sheriff to avoid having her entire household moved to the curb. Friends came with a trailer, and within a few days everything she owned was packed and moved into a friends garage and basement. Within the week, Barb was out of her home of 15 years and living with a friend. She is looking for a rental home she can afford. With only $1100 in disability income a month, it isn’t going to be easy.

This is not an isolated case. “The Bank” that Barb paid her mortgage to is a large, national bank. Last fall, my in-laws stopped by my house one day and asked me to take a look at mortgage papers they had received from their bank – which is a small bank in my hometown. This “hometown” bank has a few branches in neighboring villages, but it is not a large, national bank, nor a large bank chain. My in-laws were attempting to refinance their existing mortgage in order to take advantage of a cheaper interest rate. I knew my in-laws paid their own home-owners insurance, and I knew the local agent they did business with. I was surprised to see a line item in the refinance papers for “home owners insurance”, and the cost: $2000 per year. The current insurance policy with the local agent is around $700 per year.

If your finances deteriorate to the point that you cannot pay the insurance premiums on your home, don’t automatically let the bank buy a replacement policy for you.  Talk to your insurance agent and see what can be done to keep the policy you have now.  If you are signing loan papers, pay attention to every line item in the loan disclosure paperwork and the loan papers themselves. If you see something you don’t understand or do have questions about, ASK. The law requires that your lender give you an answer. Ask questions until everything is explained to your satisfaction. It is your money, make sure you understand the cost.

For those of you that are asking the question, “Does the bank make money on those premiums, is that why they are so high?” The answer is, “Yes, you bet they do.”  Writing that policy to cover that loan through an insurance company (working with the bank for that very purpose) nets the bank a tidy commission.

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